McCreery v. Day — 28 N.Y. St. Rep. 597

Majority

p. 597

McCreery et al., App’lts, v, Melville C. Day et al., Resp’ts.^[1]

(Court of Appeals,

Filed January 14, 1890.)

Headnote

1. Contract—Rescission op.

Where a contract is rescinded while in course of performance, any claim in respect of performance, or of what has been paid or received thereon, will o'dinarily be referred to the agreement of rescission, and in general no such claim can be made unless expressly or impliedly reserved upon the rescission.

3. Same—Discharge op sealed by unsealed instrument.

The ancient technical rule of the common law that a contract under seal cannot be varied or discharged by a paroi agreement is practically superseded.

8. Same.

The technical distinction between a satisfaction before or after breach seems to have been disregarded in this state, and a new agreement by parol, followed by actual performance of the substitu'ed agreement, whether made and executed before or after breach, is treated as a good accord and satisfaction of the covenant.

p. 598

Appeal from judment of supreme court, general term, first department, affirming a judgment in favor of defendants, entered upon an order granted upon defendants’ motion for a judgment on the pleadings.

The agreement, for a breach of which this action was brought, was entered into between the plaintiffs, one Andrews and one Garrison, defendants’ testator. By its terms plaintiffs sold to Garrison a one-fourth interest in a contract for the construction of a certain railroad running between two defined points. Garrison was to pay plaintiffs a certain sum for work already done, materials furnished and rights acquired up to the date of the contract, and thereafter one-fourth of the amounts expended in further construction of the road. Subsequently Garrison wrote to plaintiffs and Andrews, giving up the contract, and plaintiffs, in. compliance with the terms of the letter, caused an agreement to be endorsed on the contract to the effect that the same was to be considered annulled and superseded by the arrangement made in lieu thereof, embodied in the letter of Garrison.

J. W. Hawes, for app’lts; Melville G. Day, for resp’ts.

The parties by their agreement endorsed on the contract of March 2, 1882, in terms annulled that contract and declared that it should be of no further effect. The claim that the annulment of the contract did not discharge Garrison’s obligation under the original contract to pay his proportion of expenditures made by the plaintiffs for the construction of the Pittsburgh, Youngstown & Chicago railroad, between the date of the contract and its annulment, depends on the intention to be deduced from the agreement of annulment, construed in light of the attending circumstances. Where a contract is rescinded while in course of performance, any claim in respect of performance, or of what has been paid or received thereon, will ordinarily “ be referred to the agreement of rescission, and in general no such claim can be made unless expressly or impliedly reserved upon the rescission.” Leake on Contracts, 788, and cases cited.

The agreement annulling the original contract recites that that contract had been “ superseded by agreements and arrangements made in lieu thereof,” embodied in Garrison’s letter of November 6, 1882, and the several contracts executed by the parties to that contract, and others bearing date October 25, 1882. In construing the scope of the agreement annulling the original contract, the letter and the contracts of October 25, 1882, are to be deemed incorporated into the agreement. Construing these several writings together, they plainly show that the parties intended that Garrison should be discharged from all liability under his contract of March 2, 1882, for any expenditures theretofore made, or thereafter to be made in constructing the line between Pittsburgh and Newcastle Junction. The letter was written after Garrison had received the contracts dated October 25, 1882, for execution, and declares that he will sign them on the condition and understanding that he is not to pay anything more than Mr. Humphrey’s company pays, under the plaintiff’s agreement with him of April 13,

p. 599

1882, “ that is, $150,000 and J of the cost of the road to Newcastle Junction, after that date.”

The agreement with Mr. Humphrey, of April 13, 1882, provided for the construction of the part of the line of the Pittsburgh, Youngstown & Chicago between Newcastle Junction and Akron, by a new corporation to be formed, and that Humphrey should pay the plaintiffs $150,000 for expenditures incurred and rights acquired on that branch of the road prior to the making of the contract, and also one-fourth of all expenditures thereafter made in its completion.

The letter goes on to state that the agreement with Mr. Humphrey was made “after consulting with me, and as it insured my road (Wheeling & Lake Erie R R) a line to Pittsburgh, I was ready to assent to it in place of the agreement of the 2d of March, and you know I have so considered it since, and that I was owner of one-fourth of the new company, all previous agreements between us being superseded, I do not want any interest in the road from Newcastle Junction to Pittsburgh. I will pay whatever Mr. Humphrey’s company has paid on the agreement of the 13th April.”

The clear import of the proposition of Mr. Garrison in his letter is, that he would sign the contracts of October 25, 1882, provided he should be placed in the same position in respect to the •enterprise as that occupied by the company represented by Mr. Humphrey, and be relieved from all interest in, or obligation to contribute to the construction of the part of the Pittsburgh, Youngstown & Chicago railroad between Pittsburgh and Newcastle Junction. Garrison thereafter executed the contracts of October 25, 1882, relating to the construction of the road between Newcastle Junction and Akron, whereby he assumed other and different obligations from those he had assumed by his contract with the plaintiffs of March 2, 1882.

The main claim in the action is to recover from Garrison’s estate, under the contract of March 2, 1882, for a share of expenditures made by the plaintiffs in the construction of the part of the Pittsburgh, Youngstown & Chicago railroad between Pittsburgh and Newcastle Junction, after the date of that contract, and before the execution of the annullment agreement. The agreement annulling the prior contract is supported by an adequate consideration. The new obligation which Garrison assumed under the contracts of October 25, 1882, was alone a sufficient consideration. City of Memphis v. Brown, 20 Wall., 289 . There was a consideration also in the mutual agreement of the parties to the prior contract (which was still executory although in the course of performance), to discharge each other from reciprocal obligations thereunder, and to substitute a new and different agreement in place thereof.

The contract of March 2, 1882, is sealed, while the agreement annulling it is unsealed. Upon this fact the plaintiffs make a point, founded on the doctrine of the common law, that a contract under seal cannot be dissolved by a new paroi executory agreement, although supported by a good and valuable considera

p. 600

tian, “ for,” as is said, “ every contract or agreement ought to be dissolved by matter of as high a nature as the first deed.”' Countess of Rutland's Case, Coke, Pt. V., 25 b. The application of this rule often produced great inconvenience and injustice, and the rule itself has been overlaid with distinctions invented by the judges of the common law courts to escape or mitigate its rigor in particular cases. But in equity the form of the new agreement was not regarded, and under the recent blending of the jurisdiction of law and equity, and the right given by the modern rules of procedure in this country and in England to interpose equitable defenses in legal actions, the common law rule has lost much of its former importance. A recent English writer, referring to the effect of the common law procedure acts in England, says “ the ancient technical rule of the common law, that a contract under seal cannot be varied or discharged by a paroi agreement, is thus practically superseded.” Leake on Contracts, 802.

Courts of equity often interfered by injunction to restrain proceedings at law to enforce judgments, covenants or obligations equitably discharged by transactions of which courts at law had no cognizance. See 2 Story Eq., § 1573. It is a necessary consequence of our changed system of procedure, that whatever formerly would have constituted a good ground in equity for restraining the enforcement of a contract, or decreeing its discharge, will now constitute a good equitable defense to an action on the contract itself.

It was one of the subtle distinctions of the common law as to the discharge of covenants by matter in pais, that although a specialty before breach could not be discharged by a paroi agreement, although founded on a good consideration, nor even by an accord and satisfaction, yet after breach the damages, if unliquidated, could be discharged by an executed paroi agreement, because, as was said, in the latter case the cause of action is founded, “ not merely on the deed, but on the deed and the subsequent wrong.” Broom’s Legal Maxims, 848, and cases cited. The absurd results to which the common law doctrine sometimes led is illustrated by the case of Spence v. Healey, 8 Exch., 668, in which it was held that a plea to an action on covenant for the payment of a sum certain, that before breach defendant satisfied the covenant by the delivery to and acceptance by the plaintiff of goods, machinery, etc., in satisfaction, was bad. Martin, B., saying, “I am sorry I am compelled to agree in holding that the plea is bad. It is difficult to see the correctness of the reason upon which the rule is founded.” I suppose there can be no doubt that the fact presented by the plea in the case of Spence v. Healey would have constituted a good ground for relief in equity. The technical distinction between a satisfaction before or after breach, seems to have been disregarded ‘ in this state, and a new agreement by paroi, followed by actual performance of the substituted agreement, whether made and executed before or after breach, is treated as a good accord and satisfaction of the covenant. Fleming v. Gilbert, 3 Johns., 530 ; Lattimore v. Harsen, 14 id., 330; Dearborn v. Cross, 7 Cow., 48 ;

p. 601

Allen v. Jaquish, Cowen, J., 21 Wend., 633 . So also a new agreement, although without performance, if based on a good consideration, will be a satisfaction, if accepted as such. Kromer v. Heim, 75 N. Y., 574 , and cases cited.

In the present case it may be justly said that when the agreement annulling the contract of March 2, 1882, was executed, there had been no breach by Garrison of his covenant therein, as he had not been called upon by the plaintiffs to pay his share of the construction account. But it was the plain intention of the parties that the new arrangement then entered into should be a substitute for the liability of Garrison, present and prospective, under the contract of March 2, 1882. The transaction constituted a new agreement in satisfaction of the prior covenant, and was accepted as such. Moreover, it admitted by the reply that the contracts of October 25, 1882, were carried out. It is a case, therefore, of an executory paroi contract, made in substitution of the prior sealed contract, afterwards fully executed, which clearly, under the authorities in this state, discharged the prior contract.

In respect to the claim to recover interest during the time the payment of the $150,000 was delayed, it is a sufficient answer that the complaint admits that the principal sum was fully paid prior to September 13, 1882. The claim for interest did not survive, there being no special circumstances to take the case out of the general rule. Cutter v. The Mayor, etc., 92 N. Y., 166 , and cases cited.

We are of opinion that the facts admitted in the pleadings disclose that there was no right of action, and that the complaint for this reason was properly dismissed.

The judgment should therefore be affirmed.

All concur.